Governing Board of the Pension Fund

The Governing Board of the Pension Fund held its one hundred and fifty seventh meeting on 5 September 2007. Among the items on its agenda was a report by the Chairwoman of the Working Group on Actuarial Matters, D. Duret, on the two meetings the Group had held during the summer, on 24 July and 31 August respectively, to discuss the latest three-yearly actuarial review. She noted that the actuarial review took account of the following elements for the first time:

- the amendments to the Rules of the Fund approved at the end of 2006, according to which, as long as the funding ratio of the Fund is less than 100% in 2033, only part of the pension adjustment assumption of the reference model is taken into consideration, on the understanding that the accumulated loss of purchasing power incurred by a beneficiary or any dependents in the event of his death must not exceed 8%;

- a new method for assessing the active membership of the Fund, which makes a distinction between personnel holding a fixed-term contract, personnel holding an indefinite contract and fellows. It has proven necessary to make separate models for the trends in each of these three populations.

She underlined that the new approach, which was complex but essential, had increased the workload of both the Working Group and the actuaries and that it was important for its impact to be properly understood before the review was presented to the Fund’s higher bodies. The Working Group is to hold a further meeting to validate the final report before it is submitted to the Governing Board at its next meeting on 24 September. The Governing Board will then decide on the necessary follow-up action to be taken.

At the Governing Board’s 5 September meeting, the Administrator, C. Cuénoud, also informed the members of the position of the Fund’s assets as at the end of August. He noted that the credit markets, in particular the American "sub-prime" mortgage market, had been experiencing a crisis since the beginning of July. The latter market had expanded rapidly in recent years and the associated mortgage debt had been widely distributed across the international financial markets. The collapse of the American real-estate market meant that many of these loans would never be reimbursed. C. Cuénoud underlined that the Fund had no such mortgage bonds in its portfolio and that over 90% of the Fund’s largest bond portfolio, which was internally managed, was made up of Member State government bonds.

Moreover, the Fund’s investment policy has been to avoid hedge funds, which have often made use of very high leverage in the past and are now, in some cases, experiencing growing cash-flow problems. Nevertheless, the crisis of confidence and the cash-flow crisis facing the financial markets has repercussions for the world equity markets in general, even if global economic data is still favourable for the time being, and the Fund is thus inevitably affected by the increased investment risks resulting from the fear on the markets that the health of the banking system and market growth will be affected by the crisis.

A reliable estimation shows that the Fund’s overall performance lies between +°4.3% and +4.8% at the end of August, which represents a drop compared to the results at the end of June (when the performance was at its highest, with a year-to-date increase in assets of close to 6%) but is still higher than the annual target. It should be noted that the Fund reduced its exposure to the equity markets fairly substantially in June by eliminating most of its overweights, thus bringing the asset allocation closer to the strategic level.